Indonesia's Crude Palm Oil Sector; CPO Price Expected to Rebound
The price of crude palm oil (CPO), which has been under downward pressure for a long time as global turmoil lingers on, started to rebound due to falling stockpiles in Indonesia and Malaysia. Reserves of the commodity fell because of weather conditions and because of an increase in demand ahead of the Islamic fasting month (Ramadhan). The price of crude palm oil is expected to hit the USD $900 per ton mark in late 2013, up from USD $828-865 per ton in May and June. This price recovery is expected to continue.
It is, however, not likely that the CPO price will surpass the USD $1,000 per ton level soon as demand from China, Europe and India has still not fully recovered. In 2011, the palm oil price had reached USD $1,119 per ton. One year later it weakened to USD $800 per ton.
Global production of palm oil has eased due to a decline in palm oil output in Malaysia, the world's second largest palm oil producer, as a result of climatic conditions as well as aging palm trees. Moreover, last year, Indonesian and Malaysian palm oil companies limited their production numbers to support the weakening global palm oil price. Palm oil production is expected to decline further in July and August because of dry weather conditions.
Global increase in CPO demand can be concluded from recent Indonesian export numbers. Export of Indonesian palm oil increased to 1.82 million ton in May 2013, up from 1.49 million ton in April 2013. This increase was also due to bad soybean harvests in both the United States and South America (particularly Argentina), brought on by heavy and prolonged rainfall. Lack of soybean oil has thus been replaced by palm oil.
Various analysts believe that in the next two years prices of several commodities, such as palm oil, rubber and cocoa, will recover due to increased global trade.
Indonesia and Malaysia dominate the world's production and export of palm oil. Together, these two countries account for over 86 percent of the globe's palm oil production. About 75 percent of Indonesia's palm oil output is exported to foreign markets.
Indonesia's Palm Oil Production and Export
(million metric tonnes)
(million metric tonnes)
(in USD$ billion)
¹ indicates forecast
Source: Indonesian Palm Oil Producers Association (Gapki)